Exports Alone Can’t Reverse the Trade Deficit

http://washingtontimes.com/news/2008/aug/31/export-boom-is-short/

I have said over and over and over that our trade deficit is the result of trading away our domestic market and not getting access to equivalent markets in return.  Yesterday, I came across this commentary in the Washington Times, written by William Hawkins, a senior fellow at the U.S. Business and Industry Council.  His article makes exactly the same point. 

Here are some key excerpts from the article:

The logic is fundamental and inescapable. Markets are essential to support production and generate income. The international economic struggle is about expanding market access. The United States imports nearly twice as much as it exports, meaning it has lost a substantially larger market at home than it has been able to reach overseas.

Even with the dollar falling against the euro all year, the trade gap with the European Union increased in June. Beijing sets the value of its yuan to gain a competitive advantage, so U.S. exports to China declined in June, further increasing America’s largest bilateral trade deficit.

In the 1990s, it was common to call countries like China, India and Brazil “big emerging markets” for U.S. exports. Today, instead of pliant customers, they are ambitious rivals.

And you’ve heard me repeatedly use the “parasite” metaphor to describe the trade relationship between the U.S. and overpopulated nations that are feeding on our economy.  Here’s Hawkins’ take:

The Doha Round of trade talks collapsed because developing nations want to protect their home markets for strategic industries while adding the American market to support rapid growth. To the extent U.S. policy allows this to happen, American growth will be slowed.

And it all boils down to this:

America cannot export its way out of its negative trade predicament. It must work to recapture the largest, most accessible market available – the one inside the United States. The next president must redirect the flow of income and capital to the support of domestic economic activity rather than the growth of rivals overseas. If he does not, the many economic, financial and strategic problems he will inherit will only worsen.

This is exactly what I’ve been saying all along, but I go one step further:  we need to implement tariffs.  Redirecting “the flow of income and capital to the support of domestic economic activity” alone won’t do the trick.  Although Hawkins recognizes the problem of not getting access to equivalent markets in return for giving away ours, he does not make the essential connection of the role of population density eroding per capita consumption in those nations.  Therefore, he doesn’t realize that we can’t “compete” our way out of this mess because it has nothing to do with being uncompetitive.  Rather, we need to extract compensation from overpopulated nations (in the form of tariffs) for their inability to offer equivalent markets in return for access to ours.

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